If you think the IRS cannot figure out who used the property or when, guess again. They carefully review guest registers, phone and utility bills, and management-company records to identify usage. And if you advertise on a website for tenants, they will do a web search for your ad and follow-up on that. Further, in an audit, they will scrutinize your recordkeeping, just like any other regular business. So dont pad the ledger with expenses you cannot prove.
Now the Good News
There is one provision that is not complicated. Homeowners who rent out their property for 14 or fewer days a year can pocket the rental income, tax-free. Its known as the “Master’s exemption” because its used by homeowners near the Augusta National Golf Club in Augusta, Georgia, who rent out their homes during the Master’s Tournament (for as much as $20,000). It is also used by homeowners who rent out their homes for movie productions or those whose residences are located near Super Bowl sites or national political conventions. If you live close to a vacation destination such as the beach or mountains, you may be able to make some extra cash by renting out your home (principal residence) when you go on vacationas long as it’s two weeks or less. And although you can’t take depreciation or deduct for maintenance, you can deduct mortgage interest and property taxes on Schedule A.
More articles by Ray:
Does Your Small Business Owe Income from Foreign Sources?
Tax Deductions That Survived After 2011